Cyprus was rushing to meet a four-day deadline for
a new bailout plan on Thursday after Europe stepped up pressure on
lawmakers in Nicosia to agree to rescue measures for the small
eurozone member state's troubled banks.
One measure agreed on by political party leaders and the president was the creation of an "Investment Solidarity Fund" that would consist of donations by businessmen, ordinary Cypriots and foreign investors.
Details of the bill, which are still being ironed out, will be reviewed by the cabinet on Thursday evening, government spokesperson Christos Stylianides said.
Nicosia needs urgently to come up with a series of measures that could raise 5.8 billion euros (7.5 billion dollars) it needs to qualify for a 10 billion euro rescue loan from the eurozone and the International Monetary Fund (IMF).
Other measures Cyprus is exploring as part of a "Plan B, "include seeking some form of Russian help, applying a small tax on bank deposits, dipping into pension funds as well as assets from Cyprus' wealthy Orthodox church.
Finance Minister Michael Sarris, who is in Moscow in an effort to clinch a deal, ruled out a loan saying help would come in some form of an investment.
"We will have a programme of support for Cyprus by Monday," said Central Bank of Cyprus Governor Panicos Demetriades, after the nation's parliament comprehensively rejected a bailout deal agreed to on the weekend by European finance ministers, which imposed a controversial levy on bank deposits in Cyprus.
Earlier on Thursday the European Central Bank set out a deadline to sign off on a bailout by saying it would only provide emergency funding for Cyprus' banks until Monday, as a result raising the risks of a collapse of the nation's financial sector.
After Monday "Emergency Liquidity Assistance could only be considered if an European Union/International Monetary Fund programme is in place that would ensure the solvency of the concerned banks," the ECB said in a statement.
Cyprus banks have been shut since last Friday and will remain shut until Tuesday to prevent a run.
Long queues could be seen at ATM machines across Cyprus, with many reported to already be out of cash.
Reports said shops and petrol stations were not taking credit cards and there were shortages of medicine as suppliers were refusing to accept credit from retailers.
Highlighting the standoff between Cyprus and the European Union, the President of the eurozone group of finance ministers Jeroen Dijsselbloem repeated on Thursday that Cyprus would have to bear part of the burden of any bailout.
"The eurozone stands ready to deliver that kind of support, but in order for it to be sustainable, there needs to be an element of burden-sharing from the Cypriot side," said Dijsselbloem, who is also the Dutch finance minister.
Analysts say that without a contribution from Cyprus, any EU-backed bailout would not pass the German Parliament, which also has to agree to the rescue plan.
In the meantime, the Frankfurt-based ECB's move also triggered renewed uncertainty on European financial markets about how the Cyprus crisis will be resolved and resulted in long queues forming at cash machines across the country.
Reports were also emerging that the growing economic chaos in Cyprus was leading to cash machines not being refilled and some companies unable to pay their employees' wages.
Up until the ECB's announcement the market reaction to the drama unfolding in Cyprus has been relatively subdued.
There has also been no sign of any contagion spreading to other parts of the eurozone with officials so far having successfully headed off concerns of a Cypriot-style bank levy being imposed in states at the centre of the eurozone debt crisis such as Spain and Italy.
But by mid-morning trading, the ECB's threat to end the flow of emergency funds to Cypriot banks sent the eurozone's blue-chip Eurostoxx 50 index down by 0.9 per cent.
After gaining ground in recent days, the euro slumped 0.2 per cent to 1.2904 dollars amid investors' fears about the fate of the bailout for Cyprus' ailing banking sector.
The Fitch credit rating agency also sharply criticized Europe's handling of the Cyprus crisis.
It said the unprecedented inclusion of the one-time tax in Cyprus' bailout "inevitably increases the danger of contagion risks within the eurozone" and "sets a precedent that depositor bail-in mechanisms are now an acceptable policy tool."
A surprise sharp fall on Thursday in the eurozone's closely watched Purchasing Managers' Index (PMI) for March underscored the threat posed to the eurozone by the crisis surrounding Cyprus.
"The deteriorating situation in Cyprus also raises the prospect of business and consumer confidence falling further across the single currency area, and possibly dragging the PMI numbers down further in April," said Chris Williamson, chief economist with the research group Markit, which released the survey.
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